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Sexual Orientation Judgment Exceeds $3M

​A family-owned bank in Minnesota and its directors must pay damages potentially exceeding $3 million to the bank's former director and president, who was fired after suing for sexual orientation discrimination, the Minnesota Steele County District Court ruled.

The Habberstad family has been the majority owners of a major Minnesota bank, Farmers and Merchants State Bank of Blooming Prairie (F&M), since its inception. Oscar Habberstad helped found F&M in 1904 and served as president from 1914 to 1954. In 1954, his son Edward became F&M's president and served until 1983. In 1990, Country Bankers Inc. (CBI), was formed as a holding company for F&M and future-acquired banks, and CBI purchased Citizens State Bank of Hayfield (Citizens) in 1992.

After Oscar and Edward retired from F&M, each served as a consultant and chair of the board and earned significant ongoing compensation. Stephen Habberstad took over as president in 1987 and worked full-time for the banks for 37 years. The banks never offered him a formal retirement plan as president. He and other family members, including his sister, Susan Boschetti, owned most of the banks' stock. Stephen retained Susan and her husband as consultants, and they received substantial salaries from the banks.

Stephen Habberstad was married to Kimberly Habberstad for 30 years, and they had four children. In 2002, they separated; in 2004, Stephen told Kimberly that he was gay. Kimberly filed for divorce in 2007. Stephen gave Kimberly significant stock in 2010 to settle property claims.

In 2013, Kimberly, Susan and other Habberstad family members voted to keep Stephen off the board of directors. Later that year, they began complaining to Stephen about the compensation he and his consulting company, Habberstad Investments LLC, received, despite the fact that he had been less involved in managing the banks since 2002.

The Boschettis began demanding that Stephen justify his compensation by describing the work he was doing and sought to have a compensation study done concerning his work. At first, Stephen agreed to provide information, but then he filed a lawsuit claiming sexual orientation discrimination by the banks and the shareholders who opposed him.

In response, the Boschettis, his ex-wife and the other opposing board members terminated Stephen's employment. Stephen would not receive the paid consulting and board chair positions offered to his father and grandfather after their retirements.

In considering the evidence, the court determined that several statements by the Boschettis, Kimberly Habberstad and other board members showed discrimination on the basis of sexual orientation in violation of the Minnesota Human Rights Act. These include:

A statement by Stephen's aunt after the board of directors' election that Stephen needed "to get his act together, get back in the closet and get back to work."

A statement by Susan to his children that his conduct was "morally wrong."

A letter from his ex-wife to a Florida court disputing the custody arrangement involving Stephen and his new partner over his partner's 14-year-old son because of "their lifestyle."

The court also found a breach of fiduciary duty by the opposing shareholders in conspiring to keep Stephen off the board of directors and to end his employment as president. His termination directly followed his filing of a lawsuit, which supported his claim of retaliation.

The court awarded Stephen the equivalent of a paid retirement at the banks, determining that he should be paid $100,000 per year for the rest of his life, which would increase each year for inflation. Because his life expectancy was 82 years, and he was 61 on the date of judgment, the court acknowledged that the total could be $2.1 million, although the payments could end earlier if Stephen died before reaching 82. The court also awarded Stephen and his consulting company $25,000 in emotional distress damages, $50,000 in civil penalties and $798,733 in back wages.

Professional Pointer: This case shows the greater scrutiny many courts now apply to sexual orientation, which is protected by many state and local anti-discrimination laws, particularly when a family business is involved whose views may influence employment decisions.